(1 of )Software engineer Mark Cole does R&D on an optical transport network at Cyan Optics in Petaluma on Wednesday November 24, 2010. Scott Manchester / For The Press Democrat

Innovative technologies will lead from recession to recovery

NATHAN HALVERSON

THE PRESS DEMOCRAT | November 28, 2010

The recession has charred the local economy during the last few years.

But underneath the dark news of massive foreclosures, high unemployment and record bankruptcies is a small stream of good news that has been gaining momentum.

Sonoma County's tech sector, which suffered its own economic collapse nearly 10 years ago, has been quietly rebounding.

Fast-growing tech companies are now forecast to help rescue the local economy as the sector adds high-paying jobs and attracts outside money from investors, according to a new report by Moody's Economy.com.

"Technology will lead our economy out of the recession," said Ben Stone, director of the Sonoma County Economic Development Board, which commissioned the report. "It will be a path to recovery."

During the next five years, the tech sector will account for nearly half of the fastest growing occupations in the county, according to the Moody's forecast.

That would be a stark turnaround from the last 10 years, when companies cut more than half their local tech jobs.

The sector's recovery is a classic illustration of how business cycles work, with new growth sprouting from the charred remains of a recession.

The tech recovery incubated for several years, as laid-off engineers from the telecommunications industry began fermenting new ideas, drawing up their business plans, tracking down funding and then launching new companies.

Now those once-nascent businesses are blossoming into established enterprises with fast-growing revenues and rapidly expanding payrolls as companies go on hiring bonanzas.

Enphase Energy in Petaluma, which was founded in 2006 by two former telecom employees, now has more than 100 employees and is being heralded in national publications such as the Wall Street Journal and Forbes for its innovative new solar-power technology. It received $63 million in funding in June and $40 million in March from venture capitalists.

Cyan Optics in Petaluma has grown from five employees to more than 80 full-time workers during the last four years, and is actively hiring for new positions. Most of those jobs are high-paying engineering jobs, which ultimately bring more money into the local economy.

"I think across the board there is a lot of opportunity right now, and we'll see some growth," said Mike Hatfield, Cyan's chief executive. "We've added 25 employees this year alone."

The company sells a next-generation system for handling network traffic to phone companies, Internet providers and cable networks struggling to deliver a flood of digital services. It received $22 million in venture funding in December 2009, bringing its total backing to nearly $50 million since being founded in 2006.

"That's money coming in from the South Bay and investors on the East Coast," Hatfield said. "We are bringing more money in from the outside and spending it here. . . . I know restaurants around our office are happy."

But not all of the tech sector is returning. A decade ago, tech companies not only created new innovations in Sonoma County, they also manufactured those products here. Now companies outsource a large part of that manufacturing to other places, such as specialized facilities in the South Bay or less expensive plants overseas.

"There has been a separation between companies like ours and manufacturing," Hatfield said. "I don't see that changing."

Today's emerging companies focus heavily on research and development, meaning the jobs are often higher-paying and require advanced education.

These jobs pay nearly double the county's average salary, according to the Moody's report. That is good news for Sonoma County, where wages have remained flat for nearly a decade since the local telecom bust began.

Medical technology companies are also leading the charge to a healthier economy.

TriVascular, a Santa Rosa medical technology startup, recently received approval to launch a stent-graft system for repairing abdominal aortic aneurysms in Europe.

TriVascular has about 260 employees at its headquarters near Charles M. Schulz-Sonoma County Airport and plans to add 100 more over the next year as it starts commercial production, marketing and sales.

Calix, a Petaluma company that manufactures equipment for Internet providers, was the first Sonoma County company to go public in three years. Its Wall Street debut raised $82 million during the company's initial public offering in March.

Calix is one of the many local tech companies that has been around for longer than a decade and has benefitted from the recent resurgence in the sector. The Petaluma company posted $233 million in sales last year, up from $134 million in 2005. Its sales jumped 50 percent in the second quarter of this year and 27 percent in the third quarter.

Most of Calix's 400 employees work in Petaluma, where the company does engineering, customer support and corporate functions.

Another local tech company surging in growth is Sonic.net, which is a local Internet service provider that has grown 30 percent during the last two years.

"We recently crossed over 100 employees, which is an exciting milestone," said Dane Jasper, Sonic.net's co-founder and chief executive. "I think we'll be much bigger in two years."

Sonic.net has evolved from a dial-up Internet provider for residential customers to a provider of next-generation broadband services to both households and businesses. It recently completed a large expansion of a faster network in the Bay Area, and is attracting more enterprise business.

"Some of the big wins for us have been with large tech companies in the Bay Area," Jasper said. "That is likely to accelerate our growth."

About half of Sonic.net's employees are engineers who install and maintain the company's network. The other half are sales and customer-service representatives who have come from other industries that shrivelled during the recession.

Motion Analysis in Santa Rosa is another long-established tech company enjoying the surge. In the last 18 months, the company's sales have grown 30 percent, said Rita Maloney, its vice president of marketing.

"Our sales were flat for two years," she said. "Now we are coming out of that."

The company has 21 employees in Sonoma County and generates an estimated $15 million to $20 million in annual revenue by developing advanced technology to capture motion and convert it into 3D simulations used for video games and movies.

The local tech sector does face challenges, such as the high cost of doing business in California and especially in the Bay Area.

"The cost of living in Sonoma County has gone up so much it's hard to attract and retain people," Maloney said. "If you're coming from the South Bay it looks great. But if you're coming from Iowa it looks like a shock."

Eric Christensen, founder and chief executive of RotoFactory in Santa Rosa, which provides digital visual effects work for Hollywood movies, said he is moving a substantial part of his company to New Orleans because of tax incentives offered there.

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"I don't want to sound doom and gloom, but I just wish there was a little more incentive for local businesses here," Christensen said. "Our move came down to tax incentives."

RotoFactory, which currently has nine full-time employees, will open an office in New Orleans and move six employees there, Christensen said.

Yet others think tech companies will continue to take root and expand in Sonoma County despite the higher cost of living.

"This has always been an expensive place," Hatfield said. "I think there are a lot of talented people here and lots of opportunities for them to solve problems and start businesses."

According to the Moody's report, the cost of doing business in Sonoma County has dropped substantially in recent years and is now moderately cheaper than the national average.

Many former telecom engineers have ventured into other tech spaces such as alternative energy, starting companies that solve emerging problems. That diversification will help protect the economy from a future recession that might impact a particular field such as telecom, green tech or medical devices.

"It can help cushion the industry," Stone said. "And that means a stronger economy going forward."

You can reach Staff Writer Nathan Halverson at 703-1577 or nathan.halverson@